Freeman

ARTICLE

Runaway Spending Brings Crisis in Local Governments

APRIL 01, 1959 by LAWRENCE SULLIVAN

Mr. Sullivan is Coordinator of Information of the U. S. House of Representatives.

All local government in the United States is in deep financial distress. Inflation is increasing costs much faster than the cities, counties, and states can find new sources of revenue. In their 1959 sessions virtually all our state legislatures face dif­ficult budget deficits.

The current deficit in California ranges between $200 million and $250 million, the final figure to be determined by administrative de­cisions.

With a budget of $2 billion for New York State, Governor Rocke­feller recommended an increase in the state gasoline tax from 4 cents to 6 cents a gallon, plus higher state income tax rates, and more local taxes on cigarettes. In all, new taxes requested total $277 million a year.

In Massachusetts, Governor Furcolo asked the legislature for $90 million a year in new taxes. "No other Governor in the history of Massachusetts ever has asked for so much in new revenues at one time," says the Massachusetts budget survey.

An official study in Connecticut found "the big problem is how to meet growing state expenses with­out operating in the red."

The Idaho survey concluded, "How to raise $15 million for schools is a problem."

From Illinois: "Lawmakers must scratch for new funds for both hospitals and schools."

Maryland needs more new rev­enues to finance a general in­crease in teachers’ pay promised last year.

Michigan faces a deficit of $65 million this year. The legislature had before it 13 specific proposals for tax increases.

Montana faces a current deficit of $5 million.

Oregon discovered a crisis in her unemployment trust fund, plus an embarrassing deficit in her operating budget.

South Carolina faces a deficit of $15 million.

Texas faces a deficit of $55 mil­lion this year, and $74 million next year, if all presently author­ized programs are expanded at the rate now fixed by law.

Washington State faces a defi­cit of $80 million this year.

Other states seeking new rev­enues to avert 1959 deficits are Alabama, Colorado, Georgia, Min­nesota, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Wisconsin, and Wyoming.

Washington, D. C. is no excep­tion to the rule for cities. Early in January a committee of the House of Representatives warned the commissioners for the District of Columbia against their rapidly ex­panding municipal payroll. "The percentage of payroll increase in the District of Columbia has gone up in recent years far more than in any other similar city in the population class." In 1952, Wash­ington D. C. carried 19,676 on the city payroll; the current total is 23,421.

A 1957 survey by the Federal Reserve Bank of Philadelphia re­ported that state and local budgets have increased from less than 5per cent of the gross national product in 1946, to 9 per cent for 1956.

Almost without exception since 1953 all local and state govern­ment units in Pennsylvania and New Jersey have been operating in the red. Some now approach the limits of their borrowing power.

This Federal Reserve study re­lates the stormy meeting of a local school board which demanded an immediate new school.

"But ends barely meet as it is," the treasurer interrupted. "How are we going to pay for a new building? We still owe a lot of money on the gym we built in 1953. We’ll have to have higher taxes before we can take on any­thing more."

"I don’t think the public will stand for more taxes," another member of the board interjected. "We’ve already raised taxes twice, and people are beginning to grum­ble."

Looking to Washington

U.S. Budget Director Maurice H. Stans tells of a meeting to dis­cuss a new bridge in the Midwest. Part of the cost was to be borne by the city, state, and county, but no division of allotments could be agreed upon. "Everybody was un­happy, and there was no solution in sight until one fellow at the end of the table suggested brightly : ‘Let’s get the money from Washington—then no­body’ll have to pay for it.’ "

In 1946 state and local spending was only 18 per cent of all gov­ernmental spending in the U.S. Today the state and local total makes 36 per cent of all public spending.

Three states in the Northeast and all their cities over 25,000 population went into the red by a total of $1.4 billions during the four fiscal years, 1953-56 inclu­sive.

Growing deficits in Dixie were surveyed in the January 1959 bul­letin of the Atlanta Federal Re­serve Bank. "State and local gov­ernments borrowed at a record rate in 1958. . . . The borrowing trend of state and local govern­ments in the [Atlanta] District still appears to be upward…. The demand for public services con­tinues unabated and, in a sense, feeds upon itself. . . . Although some new sources of revenue may still be untapped, they are cer­tainly dwindling. . . . The time, therefore, may be approaching when the public must choose be­tween a school or a shiny new au­tomobile, a sewer or a new tele­vision set."

Public Profligacy

Population increase, of course, justifies some annual increase in local budgets. Since 1946 city and county populations have increased by roughly 25 per cent on national averages.

In most urban areas, per capita income has increased upwards of 60 per cent since 1946. There is hardly a community in the country which could not afford to sustain normal growth in public services out of current income.

But what community can cover the pinch of inflation, when it costs $2.46 today to duplicate what $1.00 brought in new construction in 1945?

In 1945 hospital construction was estimated on the basis of $10,­000 per bed. Today’s hospitals are calculated on the basis of $25,000 per bed.

"Charge it!" appears to be the guiding mood of the city fathers everywhere.

Thus, budget demands have far exceeded, percentage-wise, both population growth and improve­ment in per capita income. Ex­travagance approaching public profligacy at the state and local levels is another grave factor in today’s fiscal crisis. Local tax­payers must take matters in hand. In many areas, grumbling tax­payers already are looking to their political powder horns.

A revealing incident epitomiz­ing the Wallingford spending mood of local supervisors comes to light in Montgomery County, Maryland, a wealthy and booming suburban area adjoining Washing­ton, D.C. For many years new schools were located on 5-acre plots. Recent county regulations make the new area 30 acres per school—the legal limit on areas taken by eminent domain. In one instance the school site alone, with road frontage and storm drainage, cost $10,000 per acre—or a total of $300,000 before ground was broken for the new school!

Many suburban counties across the land today face critical short­ages of schoolrooms. Yet scores of these same counties already have launched junior colleges, extend­ing public education through two or four years of college, while some of their first and second grades still are on split-shifts, or housed in quonset-type tempos.

Roads and Streets

New roads and streets neces­sarily deferred during the war­time restrictions on building ma­terials, create another major prob­lem in local finances. Since the war, auto registration has doubled in most states. But no community has yet caught up with this growth, plus the backlog of streets and highways neglected during the years 1941-46. And all this high­way development postponed dur­ing the war then fell on top of a mountain of deferred extensions accumulated during the depression years 1932-42, when most cities and counties maintained their fis­cal equilibrium only by avoiding all expansion and renewal of streets, alleys, and highways.

In most areas, however, these deferred highway demands over­lapped similar wartime backlogs in hospitals, schools, waterworks, and fire prevention. Trying to catch up all at once, during the last decade, with 25 years of de­ferred demand plus a 25 per cent population increase presents the raw skeleton of today’s national crisis in local finances.

First Things First

Every state and every local board faces the stern task of per­fecting a slate of orderly priori­ties on public improvements. No community can do everything at once—today’s controlling mood.

Extravagance must be curbed through alert public auditing com­mittees of taxpayers. With federal aid available in virtually every facet of local operations, the ten­dency to conceal real costs from local taxpayers is becoming a dan­gerous national habit.

Trick budgets are strong en­couragement to runaway spending. Hardly a city, county, or state in the U.S. today presents its annual budget in two columns headed income and outgo. Instead, every budget is a maze of "segregated revenues," "earmarked funds," "special purpose taxes," "statu­tory items," and "restricted rev­enues"—until the poor, befuddled taxpayer has difficulty determin­ing whether his community is really in the black, or hopelessly overboard with "deferred capital items."

It should not be necessary for citizens to hire professional CPA’s to find out what their local budgets add up to from year to year.

Honest budgets, and straight­away accounting statements pub­lished monthly by legal require­ment, would permit the taxpayers to know what their master plan­ners are doing to them from month to month.

"Urban Renewal"

In many urban areas today new apartment buildings are being constructed which yield to the lo­cal government roughly $150 a year per unit in taxes. But each apartment gives, on national aver­ages, 1.8 pupils to the public school system. Each pupil costs the county about $200 per year. So each apartment adds $360 a year to the school budget, and contrib­utes approximately $150 a year in taxes ! This is jocularly called "ur­ban renewal."

Such is the road traveled today by literally thousands of growing communities—the very core of the ever-increasing wail for more and more systems of federal aid.

But with the federal establish­ment currently in the red at $12 billion a year, there are no longer any untapped revenues, anywhere, to supply the local deficits.

Total taxes in America today—federal, state, and local—take 28 per cent of the gross national product every year. And total gov­ernment spending consumes 30 to 33 per cent of the gross national product. One reputable tax authority estimates that every employed person in America now works until April 14 merely to pay his year’s taxes. Then, on April 15, he starts to work for himself and his family.

Classical theories of taxation teach that no community can sus­tain itself in a state of solvency when the total tax burden exceeds 20 per cent of the gross product. Americans have been paying more than 20 per cent since 1940. And today state and local expenditures combined are increasing by more than 10 per cent a year, and state and local debt since 1940 has in­creased at the average rate of 12 per cent per year.

Congressman Wilbur D. Mills of Arkansas, chairman of the House Ways and Means Committee, pre­sents vigorously the crux of the revenue problem at all levels of government: "In recent years one popular way of imagining our­selves out of this problem has been to assume that the increase in revenues resulting from the growth of the economy will out­strip government expenditures."

Only one figure need be cited to explode this theory, Congressman Mills insists; total public debt has increased steadily from $38.7 bil­lions in 1932 to $333 billions at the end of 1958.

During the same period, gross national product has increased from $56 billion a year to the present $450 billion.

During the last quarter-century our gross national product has been multiplied by 8 but total gov­ernmental expenditures have been multiplied by 10.

Learning to Say "No!"

Only effective public disciplines can stop this headlong rush toward inflation, national bank­ruptcy, and chaos.

Obviously, we are all in for some stern local budgets.

Somehow, we must devise, at every level of government, a sys­tem of buying only what we can afford.

Economists have recognized since history began that there is no end of human wants. Only the disciplines of civilization can hold public spending within the limits of community resources. Tax­payers are now aware that many of the welfare-state luxuries de­vised during the last quarter-cen­tury are still carried on the cuff of the public debt.

True, some one group in every community regards each program of public service as indispensable to human felicity. Public belt-tightening means simply that each community must somehow arrive at a solid public judgment on what the local treasury can afford. Tested by this standard, every program must have a controlling relative importance. And that is where the public belt-tightening must begin—at the first program, or extravagance, the community decides it cannot afford.

There is an ancient adage in political science which teaches that any government big enough to give the folks everything they want is big enough to take away everything they’ve got.

Local budgets are more than a fiscal problem, more than an eco­nomic issue. Balanced budgets to­day are a moral issue of the first order.

ASSOCIATED ISSUE

April 1959

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